You’re probably familiar with the TV show Who Wants to Be a Millionaire?, which was launched in the UK in 1998 and now has worldwide popularity with franchises across the globe, but what you might not know is why a million pounds is the ‘go-to’ figure for being rich. Just stop and think about it for a minute, what makes £1,000,000 the magic number for being “rich”?
Why strive to be a millionaire?
Del Boy always said, “This time next year, we’ll be millionaires” which had a lovely ring to it. It’s an aspirational figure, something to aim for, a figure that would potentially solve all your financial needs while giving you a cosy life. For Del Boy, and probably a lot of other people who strive to be millionaires, it’s not so much about the figure itself as it is about not having money worries and being able to live comfortably – if not in the lap of luxury.
Based on this, being a millionaire isn’t really about the money; it’s the achievement and the lifestyle that comes with it. And the funny thing about Who Wants to Be a Millionaire? is that they’ve kept the same prize money since 1998. If they’d increased their prize in line with inflation, when things get more expensive with time, the title would have to change to Who wants £1,772,953 and 63p? But that’s a whole lot less catchy and nearly three-quarters of a million pounds more to pay if someone won.
The truth is, and this is going to sound a bit silly, but a million pounds sounds like a really cool number. It’s lovely and round. It means you can start calling yourself a millionaire (if you want to) and it’s a sure-fire way to let everyone know that you’re properly rich. But just how rich?
Does having £1million still mean you’re rich?
It sounds like it, doesn’t it? If you say someone looks like a million bucks, then it’s a huge compliment. Having £1million in the bank is no mean feat, but it may not make you as filthy rich as you think you are.
You see, £1,000,000 doesn’t buy what it could have when Who Wants to be a Millionaire? first aired back in 1998.
We worked out earlier that due to inflation, you’ll effectively have £772,953.63 less buying power than you would back in the day. That’s three average houses in England that you won’t be able to buy.
And that’s without looking at the change in house price over the years. Since 1998, house prices in the UK have increased by more than 240%. In 1998, the average house was just shy of £70,000, but nowadays you’d be looking at closer to £240,000 for the very same house.
This means that in the past, your £1million could have bought you 14 average houses, but in 2020, that same amount will only buy you four. But, of course, the property market and inflation haven’t exactly gone up hand in hand. Your buying power on other things may not have changed as drastically, for example, if you bought the Ferrari F355 in the 90s, it would have run you up around £83,000 but in 2020, the new Ferrari F8 is likely to cost closer to £200,000.
So, you may notice a theme here. Luxury items don’t follow the same rate of inflation as your everyday products. In fact, luxury inflation has risen by 17.6% since May 2016 and has averaged 4.7% a year – more than double ‘mainstream’ inflation rates of 2.3% a year. In a nutshell, the cost of things you may want to buy as a millionaire is rising faster than everyday items, which means that inflation impacts your money even more considerably.
How many millionaires are there in the UK?
If you think that you need to be a professional footballer, a Hollywood actor or start a very successful company to become a millionaire, then you might be in for a surprise. In 2016, 3.6million households in Britain held more than £1million in wealth – and by that, we mean money held in pensions, investments, property, belongings, and savings.
If you do the math, that works out at around 5% of the UK population being millionaires, which although it’s not a huge amount, does take away the special shine of that title a little bit.
What is the ‘new millionaire’?
We’ve realised that the benchmark for being super-rich has changed since the 80s and 90s. A million bucks just isn’t worth what it used to be.
So, what is the new millionaire? Is it having £2million in the bank? More than that? According to some, to make it onto the ‘super-rich’ list you’ll need to be worth at least £33million. That suddenly puts the cat among the pigeons, doesn’t it?
This figure highlights income inequality in the UK, which – despite what the numbers above may say – has only grown slightly in recent years. Although there may be a rising number of millionaires and multi-millionaires, it doesn’t mean that society is becoming less equal. In the UK, we’ve seen regular increases in minimum wages, more employers committing to paying the Living Wage, and of course, low-cost investing platforms can help make your money work harder.
Do you need to be a millionaire to be rich?
So, let’s go back to that idea of what being a millionaire really is. It’s living comfortably, having a good pension plan, and not struggling to make ends meet. Maybe you simply want to retire at 55 with enough money to do what you want, or perhaps you’re looking to help your child with university costs. For many people, being rich doesn’t bring a particular number to mind – maybe it’s a pay rise, a reduction in their mortgage costs, a nice end-of-year bonus.
Being rich is being able to spend money without having to rationalise every penny to yourself, it’s having an emergency savings pot built up, it’s being financially stable, and it’s having disposable income. Do you need to be a millionaire to be rich? No, but it probably wouldn’t hurt!
Please remember that past performance is not a reliable indicator of your future results.
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.